ABSTRACT

Using a unique data set, we document two secular trends in the shift from centralized to decentralized pension fund management
over the past few decades. First, across asset classes, sponsors replace generalist balanced managers with better‐performing
specialists. Second, within asset classes, funds replace single managers with multiple competing managers following diverse
strategies to reduce scale diseconomies as funds grow larger relative to capital markets. Consistent with a model of decentralized
management, sponsors implement risk controls that trade off higher anticipated alphas of multiple specialists against the
increased difficulty in coordinating their risk‐taking and the greater uncertainty concerning their true skills.